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Market Return Around the Clock: A Puzzle

Published online by Cambridge University Press:  25 July 2022

Oleg Bondarenko  and
Dmitriy Muravyev Open the ORCID record for Dmitriy Muravyev [Opens in a new window]
Oleg Bondarenko
Affiliation:
College of Business Administration,University of Illinois at Chicago olegb@uic.edu
Dmitriy Muravyev*
Affiliation:
Eli Broad College of Business, Michigan State University
*
muravyev@msu.edu (corresponding author)
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Abstract

We study how the market return depends on the time of the day using E-mini S&P 500 futures actively traded around the clock. Strikingly, 4 hours around European open account for the entire average market return. This period’s returns have a 1.6 Sharpe ratio and remain high after transaction costs. Average returns are a noisy zero during the remaining 20 hours. High returns are consistent with European investors processing information accumulated overnight and thus resolving uncertainty. Indeed, uncertainty reflected by VIX futures prices rises overnight and falls around European open. The results are stronger during the 2020 COVID crisis.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 3 , May 2023 , pp. 939 - 967
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

Muravyev is also an Associate Research Fellow with the Canadian Derivatives Institute. We greatly appreciate comments from Ferhat Akbas, Hendrik Bessembinder (the editor), Vincent Bogousslavsky, David Brown (discussant), Yixin Chen (discussant), Peter Ciampi, Andrei Goncalves, Ryan Israelsen, Chao Jiang (discussant), Naveen Khanna, Paul Koch (the referee), Charles Martineau (discussant), Dermot Murphy, Neil Pearson, Jeff Pontiff, Angelo Ranaldo, Dominik Roesch, Pavel Savor, Andrei Simonov, Paul Whelan (discussant), Haoxiang Zhu, Eric Zitzewitz and seminar participants at Michigan State University, University of Illinois at Chicago, 2020 NFA Annual Meeting, Seminario Académico CEA-MIPP Chile, the 2020 Virtual Finance Seminar, the 2020 CDI Derivatives Conference, the 2021 MFA Annual Meeting, the 2021 SFS Cavalcade Conference, and the 2021 EFA Annual Meeting. We also thank CME DataMine, TickData, and FirstRate Data for providing intraday futures data. We thank Julia Dougherty and Suzanna Emelio for their editorial assistance.

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